Claims firms face tough new regime as MoJ cracks down

Cold-calling and wild promises could lead to compensation rulings

Claims management companies (CMCs) could be forced to pay back millions to consumers under new plans announced yesterday by the Ministry of Justice.

The MoJ has handed over responsibility for dealing with complaints about the firms, which handle compensation claims in areas such as payment protection insurance mis-selling and personal injury, on to the Legal Ombudsman. The change will mean CMCs could be forced to pay up to £30,000 in compensation to disadvantaged consumers, and it is believed the limit could be increased to £50,000.

At present CMC customers must lodge complaints with the Ministry of Justice, which regulates the industry but does not have the power to arrange compensation. The new rules – to be enforced from 2013 – will give consumers the chance to claim redress against rogue CMC firms for the first time.

However, the MoJ will continue to regulate the industry through its Claims Management Regulations Unit. Kevin Rousell, the head of the unit, said: "We will continue to target those CMCs who do not comply and we will work in partnership with the Legal Ombudsman to root out those CMCs that take advantage of consumers."

The MoJ has been cracking down on CMCs following public anger over a rising tide of unwanted texts and cold-calling from unscrupulous firms aiming to profit from the £10bn bank mis-selling scandal relating to payment protection insurance (PPI).

Rogue firms make promises of payouts for consumers, even though many are not even eligible for compensation. The Financial Ombudsman warned this year that people in line for compensation had no need to use CMCs as they could make claims themselves without going through a third party.

It forecast about £50m of PPI compensation it will award this year will needlessly go to claims management companies. CMCs charge about 25 per cent of the compensation payout.

Many CMCs also encourage people – through adverts on TV, newspapers and the internet – to sue for personal injury compensation, and for other losses, even though they may have not been involved in an accident.

The MoJ has banned or shut down more than 700 rogue CMCs but there are still around 3,000 in existence in England and Wales. Mr Rousell said the MoJ would now focus on improving standards and taking wider action on rule-breaking CMCs.

Last week it published proposals to ban CMCs from taking fees from customers without a written contract. It also wants to force firms to state that they are regulated by the claims management regulator rather than by the MoJ, to avoid giving the impression that they are endorsed by the government.

Chris Lawrenson, the head of legal services at the Building Societies Association, said urgent action was needed to crack down on rogue firms. "The CMCs operating in the PPI sector are generating by far the most consumer complaints, 74 per cent according the Ministry of Justice," he said. "Worse still, the vast majority of these complaints are made against just 15-20 firms out of the 1,000-plus authorised."

Richard Lloyd at Which? said: "We want to see the Government do more to clean up the CMC industry. We want a ban on upfront fees and cold-calling, and for CMCs to be required to publish online all of their terms and conditions, fees and charges."

Ian Barlow, a director of CMC firm Money Boomerang, hit back at the criticisms. "For thousands of customers, the claims management industry provides a valuable service by simplifying what can be a difficult process," he said.

He admitted that rogue firms had given the sector a bad name. "The CMC industry, particularly in the PPI sector, has occasionally shot itself in the foot."

News
Food blogger and Guardian writer Jack Monroe with her young son
people
News
people
News
peopleSinger tells The Independent what life is like in rehab in an exclusive video interview
Arts and Entertainment
booksPhotographer Richard Young has been snapping celebrities at play for 40 years - but he says it wasn’t all fun and games...
PROMOTED VIDEO
News
i100
Sport
Aguero - who single-handedly has kept City's Champions League dreams alive - celebrates his dramatic late winner
footballManchester City 3 Bayern Munich 2: Argentine's late hat-rick sees home side snatch vital victory
News
Muhammad Ali pictured in better health in 2006
peopleBut he has enjoyed publicity from his alleged near-death experience
Arts and Entertainment
Tony breaks into Ian Garrett's yacht and makes a shocking discovery
TVReview: Revelations continue to make this drama a tough watch
News
news
News
ebooksNow available in paperback
Arts and Entertainment
TV
News
The assumption that women are not as competent in leadership positions as men are leads to increased stress in the workplace
science... and it's down to gender stereotypes
Life and Style
The racy marketing to entice consumers to buy Fairlife, which launches in the US next month
food + drink
Arts and Entertainment
Inner sanctum: Tove Jansson and friends in her studio in 1992
booksWhat was the inspiration for Finland's most famous family?
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Citifocus Ltd: Product Development - Asset Management

£Attractive: Citifocus Ltd: High calibre individual with significant product d...

Citifocus Ltd: Credit Ratings - Banking Sector

£Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...

Citifocus Ltd: Economic Crime Investigation & Analysis

£Attractive Package: Citifocus Ltd: High calibre individual with a high degree...

Citifocus Ltd: Snr Risk Analyst - Capital & Liquidity

£Attractive: Citifocus Ltd: High calibre individual with superior academics an...

Day In a Page

Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
10 best stocking fillers for foodies

Festive treats: 10 best stocking fillers for foodies

From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
Phil Hughes head injury: He had one weakness – it has come back to haunt him

Phil Hughes had one weakness – it has come back to haunt him

Prolific opener had world at his feet until Harmison and Flintoff bounced him
'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

'I am a paedophile'

Is our approach to sex offenders helping to create more victims?
How bad do you have to be to lose a Home Office contract?

How bad do you have to be to lose a Home Office contract?

Serco given Yarl’s Wood immigration contract despite ‘vast failings’
Green Party on the march in Bristol: From a lost deposit to victory

From a lost deposit to victory

Green Party on the march in Bristol
Putting the grot right into Santa's grotto

Winter blunderlands

Putting the grot into grotto
'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

'It just came to us, why not do it naked?'

London's first nude free runner captured in breathtaking images across capital